After the Elections

With Obama and a divided Congress, what's on the political docket?

To Pay or Not to Pay

For retailers with more than 50 full-time employees, there is a mathematical ques­tion to calculate: to pay a penalty or not?

“Say you have 100 full-time employ­ees,” Kirke says. “Under the law, you get 30 for free. So you only pay the $2,000 penalty for the 70.”

Sounds too good to be true? Yep. “What you have to consider is [penalties] are taxed dollars,” Kirke says. “The pre­mium you pay on your employee benefits is a writeoff.”

While it’s more time-consuming than calculating the cost of paying the penalty, it could be worthwhile to map out the actual cost of offering a minimum essential ben­efit (a bronze plan).

“Every employee is not going to enroll in the plan,” Kirke says. “They could potentially go to the exchange, based on their family income, and have a sub­sidy there. We believe we can get a lot of people off your program and onto the exchange.”

The key is determining whether or not it’s financially beneficial for a retailer to offer a program that meets the mini­mum benefits requirement, encouraging lower-income employees to seek a better deal through the exchange while still making coverage available to higher-paid employees who would not receive such subsidies on the exchange.

“We use the $2,000 penalty as a base­line and run an analysis to show what it would look like to stay in the game,” Kirke says. “Rather than paying the government $2,000 after tax penalties, let’s use that as a contribution to the employees, where it can be written off.”

Whether a retailer chooses to pay the penalty or “stay in the game,” it’s time to get those plans in motion. The ACA will greatly affect a retailer’s bottom line—but a well-prepared plan of action could soften the blow.

How the PAC Money Rolls Out

Pragmatism over zealotry, judiciousness over ideology: A look at how our national trade associations seek to influence fed­eral policy suggests a conservative bent but not a full tilt toward the right.

CSP looked into how NACS, SIGMA and PMAA invested their political action committee (PAC) money—which con­gressional and Senate races they wagered in, who received the largest sums and the possible reasons why.

For an industry that is reflexively conservative, the PAC spending may at first seem surprising. Why would SIGMA and NACS each give $10,000 to U.S. Sen. Kirsten Gillibrand (D-N.Y.), or PMAA kick in $7,500 to Colorado Sen. Michael Bennet?

The answer to these questions under­scores a consistent strategy. “A few years ago, we really modified how we talk to Congress,” says Jeff Lenard, NACS vice president of industry advocacy. “We agreed to focus on the issues first. Because of that, when you look at how most gov­ernment relations is done, usually you say, ‘No, no, no’ in stopping stuff.

“We found you get a lot more accom­plished if you say, ‘How can we work with you?’ ”

PMAA president Dan Gilligan echoes that approach. “In terms of PAC support, you can see that we are very bipartisan and we consciously work at being bipar­tisan,” he says. “In the lobbying business, a senator who was your opponent in the morning might be your strongest sup­porter on another measure in the after­noon. We look to support candidates, both Republican and Democrat, who are leaders among their peers and have good relationships with marketers back home.”

That said, Republicans do receive the lion’s share, including key playmakers in both the House and Senate such as House Majority Leader Eric Cantor (R-Va.), Rep. Joe Barton (R-Texas), Rep. Tom Cole (R-Okla.) and Sen. Rick Berg (R-N.D.).

“If you want to make a friend, you need to be a friend,” says a veteran politi­cal insider familiar with the three trade associations. “What this is all about is to identify your industry group as part of their (congressional members’) constitu­ency so that you ensure a seat at the table.”

Beltway sources talked to CSP on condition of anonymity because of the sensitivity of lobbying. They said a look at the PAC distributions of NACS, SIGMA and PMAA show a preference toward certain House and Senate committee members who wield great influence on matters most important to these indus­tries: specifically, the House Energy and Commerce, Financial Services, and Ways & Means. On the Senate side, greater consideration is given to Energy and Natural Resources, Environment and Public Works, and Finance.

Taxes and Rules

Although retailers in Missouri had reason to celebrate— avoiding the 73-cent cigarette tax increase in Proposition B by less than 100 votes—President Obama’s re-election and a Democratic majority in the Senate has many U.S. retailers concerned about implications for their tobacco business.

“Elections have somewhat higher relevance for tobacco than many other consumer sectors,” wrote Deutsche Bank research analyst Andrew Kieley in a Nov. 5 report. Like many, Kieley predicted Republican victories in the Presidential and some Senate races would benefit tobacco retailers. But that didn’t happen.

So what now? “A Democratic win may be slightly negative overall for the tobacco sector due to the likelihood of increased tobacco taxes and regulation,” says Bon­nie Herzog, managing director of bever­age, tobacco and consumer research for Wells Fargo Securities LLC, New York. “Tobacco could be an area of focus for increased tax revenue, particularly to pay for national health care.”

History certainly suggests the Obama administration could look to cigarette taxes to generate revenue: In 2009, federal excise taxes on cigarettes were increased from 39 cents per pack to $1.01 per pack to expand health-care coverage for children, a move that won some bipartisan support.

However, Herzog doesn’t fear a dras­tic bump, saying “the chance for another substantial federal excise tax increase is minimal, given the large increase in 2009.”

Taxes, of course, are just one part of the tobacco equation. “We’re expecting under the Obama administration, the FDA will publish deeming regulations that would apply Chapter 9 of the Tobacco Control Act to all currently unregulated tobacco products, which includes cigars, electronic cigarettes, and lot of the new products coming down the pike,” says Bill Godshall, executive director of Smokefree Pennsylvania.

Actions prior to the election suggest the FDA was moving forward with these regulations, regardless of who would occupy the White House in 2013.

“About a month before the election, I heard that the FDA had already sent the deeming regulation to the Office of Management and Budgets to get it to sign off on,” says Godshall. “There was no way they were going to propose the regulation before the election, but ... it could come any day, week or month now.”

Fending Off a Swipe

Protect and expand: That’s NACS’ strategy as it seeks to preserve the critical victory it and mer­chant groups scored in 2011 when the Durbin Amendment on debit-card swipe fee reform passed as part of the Dodd-Frank law.

But NACS enters 2013 confronting immediate assaults on this laborious legislative victory. As CSP went to press, a federal district court was to decide whether the Federal Reserve overstepped by conceding to the banks and setting debit swipe fees at 21 cents, after initially reducing the average 42 cents per transac­tion to 12 cents. In addition to the 21 cents, the Fed tacked on 0.05% of a transaction and another cent for fraud prevention.

“We want to ensure that debit-card reform remains,” says Jeff Lenard, NACS vice president of industry advocacy. “We don’t have any hint that it would not stay, but we do want to make certain that debit reform truly becomes debit reform. And the final rule (of the Fed) was very differ­ent from the proposed rule.”

And retail groups are fighting a pro­posed $7.25-billion class-action antitrust

settlement against Visa, MasterCard and the major banks. Merchant groups, including NACS and SIGMA, fear that the settlement fails to address structural cracks that give the major credit-card companies virtual oligopolistic power over plastic.

While merchant groups line up to protect gains achieved after a 10-year battle on debit fees, NACS is also tak­ing the offensive, aiming to launch a similar—and longer-shot—crusade for credit-card reform. “Seventy percent of Congress is entering into a new term,” Lenard says, referring to members of the House and Senate elected either for the first time or to another term. “That gives us a good opportunity to start anew. … Chief among [our tasks is] how you reform credit-card fees.

“The issues will be reminiscent to the trench warfare on debit-card swipe fees—to achieve transparency, drive greater competition against the major credit-card companies and banks, and drive down transaction fees.”

“We understand competition. We compete for a penny [of gasoline mar­gin] on the street,” Lenard says. “So it’s frustrating to see an industry that is per­mitted to function without competition and get away with it.”